New School Politics

Rudy On Healthcare

Ryan | 3 08 2007

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Its encouraging, once again, to see the GOP’s front runner pushing for market based reforms. In today’s Boston Globe, Mayor Giuliani wrote an op-ed outlining what he calls the “free-market US cure for healthcare”.

His plan, as outlined in his article, is four-pronged:

-”Bring fairness to the tax treatment of healthcare”

-”Expand tax-free Health Savings Accounts”

-”Encourage Medicaid reform through block grants”

-”End lawsuit abuse by unscrupulous trial lawyers”

While my healthcare plan is much more simple than the Mayor’s (get the government out of healthcare), I am once again refreshed by Mr. Giuliani’s free market policy push, especially considering the giant step to the left the Democrats have made on economic issues, led by John Edwards who already has a plan for universal, government mandated healthcare.

There is a lot to be said about the economic rationality of Giuliani’s plan. Point-by-point,

-By cutting taxes on health insurance not provided by the employer, it will mollify the significant market distortion that has been caused by the fetish that many politicians have with attaching health service with employment. In this way, by subjecting the commodity to equal treatment incentive will be driven by natural supply and demand rather than by government manipulation of the market. By distancing ourselves from a system that forces the employer to provide healthcare, to one that lets the market decide, individuals and businesses will be driven to make healthcare decisions based on the value of the care itself rather than by circumstances set by the government.

-Lifting the government burden on health savings provides a more practical solution for individuals on healthcare. For one, it is a realistic option which accepts the fact that not everyone can, wants, or needs to be purchasing health insurance on a large scale and, additionally, enhances their ability to purchase healthcare in the future. Additionally by encouraging savings (rather than mass-consumption) we can increase the available supply of healthcare at present–thereby lowering the price–as well as accumulate wealth and thus incentive for investment and innovation in healthcare for the future.

-By decreasing the federal governments roll in Medicaid and giving the states more leverage, we will be applying the simple and effective concept of competition to government–which is almost inherently devoid of it. Federalism, which–as Giuliani correctly points out–is useful in creating political competition, can allow different sovereignties to attempt different initiatives. The value of this is (a) that different constituencies which have different needs can be tended to in different ways and (b) that different states can comparatively learn from each other’s trials, what systems work and what do not. Block grants, rather than categorical grants, allow this competition to thrive in the same way as it did under welfare reform.

-Finally, by placing caps on malpractice lawsuits we can do two things. The first would be that by decreasing the amount that doctors can be hit by lawsuits, we can reduce the costs that the industry has to undertake from such cases and thus decrease the cost of health insurance on the whole and increase the earnings available to be reinvested. Second, by reducing the potential penalties for doctors we can accentuate the incentive for doctors to innovate the type of healthcare they give thereby increasing the amount of good doctors can do while simultaneously welcoming more doctors into the profession.

Giuliani’s ideas are generally sound, and should cause excitement among free market advocates. The Mayor’s remarks on healthcare are a bright spot in a zeitgeist that is moving ever so ominously in the direction of socialized healthcare.